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Author: Amazinggrowth   |   Latest post: Sat, 16 Mar 2019, 06:13 PM

 

Opensys - High ROE, Net cash position, Decent dividend yield, Exciting future prospects, Undemanding valuations

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OpenSys is a leading solutions provider for the financial services and banking industry. OpenSys also provides end-to-end managed services outsourcing, particularly for self-service terminals, bill payment kiosks and back-office cheque processing services.

Its customer base includes mainly blue-chip companies such as AEON Credit, Alliance Bank, AmBank, Bank Islam, CIMB Bank, Hong Leong Bank, Maybank, Public Bank, RHB Bank, Standard Chartered Bank, UOB, Celcom, Maxis, TNB, TM, Sabah Electricity and Sarawak Energy.

Full background

https://klse.i3investor.com/m/blog/Amazinggrowth/191559.jsp

 

Cheap valuation

Trailing 4Q earnings growth= 44.44%

Trailing 4Q earnings =RM9.68 million 

Average equity =RM52.58 million 

ROE = 18.4%

(Click to enlarge)

 

Despite the high growth in earnings, shares of this low-profile company have been range-bound, trading between 26 sen and 37.5 sen over the past year. As a result, its trailing 12-month PE compressed from 19.7 times in 2014 to 15.6 times in 2015 and 13.3 times in 2017 and further to 9.7 times.

Its valuation appears comparatively cheap compared with its ACE Market-listed peers, such as Rexit Bhd (14.7 times), Microlink Solutions Bhd (N.A. lossmaking), Excel Force MSC Bhd (31.6 times) and GHL Systems Bhd (54.5 times).

Currently, there is zero coverage on Opensys by any research house.

 

Fair Valuation?

Trailing 4Q EPS= 3.25 sen 

Low end PE= 14.7 times x 3.25= RM0.48

High end PE= 54.4 times x 3.25= RM1.77

What is the fair value for Opensys? In the latest announcement, Opensys mentioned “In the last five years, the total number of CRMs in the market has grown exponentially with a Compound Annual Growth Rate (CAGR) of close to 40 percent.” Its trailing 4Q earnings growth is 44.44%.

To be realistic, the 40% growth rate can’t go on forever. 25% is more realistic over the next few years. Based on PE ratio of 25 times, the fair value is RM0.82.

 

Future prospects

The future looks exciting for Opensys. In 2017 annual report, Opensys mentioned that it had installed over 2,500 CRMs in Malaysia since 2014 and became the industry leader with 80% market share. 

Moving forward, there is a huge patent demand for CRMs in Malaysia. Only 20% of bank machines are CRMs today. Opensys is optimistic of winning more market share considering its excellent track record.

Source

http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=185709&name=EA_DS_ATTACHMENTS

 

 Disclaimer: The article above does not represent a recommendation to buy or sell.

 

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Labels: OPENSYS

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Chart Stock Name Last Change Volume 
OPENSYS 0.35 +0.01 (2.94%) 3,007,800 

  2 people like this.
 
okdoke any opinion on e-wallet etc which will eliminate the need of ATM/CDM? thanks
17/02/2019 07:54
ChongHH Is there a possibility the market is valuing OpenSys at 9.7x PE because the market saw a growth rate stop 5 - 10 years later? What happens after all ATM & CDM machines are replaced with CRM? Will the services revenue be large enough with greater profitability to prevent the levelling off of earnings by then? Moreover, the threat of e-wallet by then would also be more significant that cash machine growth may decline? Does OpenSys have a plan to penetrate other South East Asian market?
17/02/2019 11:29
Amazinggrowth Posted by okdoke > Feb 17, 2019 07:54 AM | Report Abuse

any opinion on e-wallet etc which will eliminate the need of ATM/CDM? thanks

okdoke,
E-wallet is still in trial period. imho, it will take at least another 20 years for e-wallet to reach the tipping point because majority of us prefer to use cash. I believe CDM/ATM will coexist with mobile payments in the future.

E-commerce is a good benchmark. The industry started in 1998 in Malaysia. After 20 years, the e-commerce penetration rate in Malaysia is still less than 6% of the total retail market.

https://e27.co/key-challenges-opportunities-malaysias-e-commerce-scene-20181022/
17/02/2019 12:14
Amazinggrowth Posted by ChongHH > Feb 17, 2019 11:29 AM | Report Abuse

Is there a possibility the market is valuing OpenSys at 9.7x PE because the market saw a growth rate stop 5 - 10 years later? What happens after all ATM & CDM machines are replaced with CRM? Will the services revenue be large enough with greater profitability to prevent the levelling off of earnings by then? Moreover, the threat of e-wallet by then would also be more significant that cash machine growth may decline? Does OpenSys have a plan to penetrate other South East Asian market?

ChongHH,
I think the market is too negative on the threat of cashless payments that will reduce the need for cash in the future. Like I mentioned above, it will take at least another 20 years for e-wallet to reach the tipping point. The ecosystem for cashless society is still in infancy stage.

Opensys 2017 annual report, “In maintenance services, the banks pay us an annual maintenance fee of 10-12 percent based on the selling price of the machines that we sold to them. The gross margin for maintenance services is 45-50 percent.“

1 CRM costs roughly RM70,000. Maintenance fee is recurring annually after 2-3 years free warranty period. Total profit for 2600 CRMs? The market is big enough to multiply profits several times.


CRM cost
http://www.theedgemarkets.com/article/opensys-roll-out-rm36m-worth-oki-cash-recycling-atms-3q
17/02/2019 13:12
Amazinggrowth Opensys 2017 annual report:

The march towards a cashless society, it seems, is unstoppable.

But wait!

In other advanced economies, including Austria, Germany, Japan, Singapore and Switzerland, cash is still king and shows no sign of abdicating. Globally, 85 percent of all payments are still made in cash (1) “The cashless society, as appealing as it may sound, is probably just as elusive as the much vaunted paperless office”, according to Yves Mersch, a member of the European Central Bank’s executive board.

In tech-savvy Singapore, where almost everyone has a mobile phone, nine out of 10 people, still prefer to pay for everyday transactions the old-fashioned way – with cash. According to interviews conducted by Bloomberg in September 2017, some of the reasons why Singaporeans prefer cash are because it is more convenient than swiping a bank card or in case when they can use digital devices, machines sometimes break down and cannot process a payment.

In Japan, cash in circulation as a percentage of GDP increased to 20 percent in 2017 from 13.5 percent in 2000 and in the United States, it gained to 8.1 percent from 6.0 percent. In the Eurozone, it rose to 10.7 percent from 5.1 percent in 2002.

Similarly in Malaysia, most people have a relatively high dependence on cash for payment transactions. Last year, cash in circulation (CIC) grew 11.5 percent year on year to RM85.46 billion. Meanwhile, CIC per GDP, a measure of a country’s reliance on cash for transactions, expanded from 6.62 percent to 6.95 percent. (2)

One of main reasons why cash remains hugely popular is because cash is the only legal tender in every country in the world, with the exception of Sweden. Cash is accepted practicably by all traders, whereas there is no obligation to accept electronic payments. As interest rates fall – and even go negative in some places – cash is increasingly used as a store of value. Cash is the only payment instrument that guarantees the user’s privacy and anonymity, while all electronic transactions are traceable.
17/02/2019 13:23
beso opensys operation is about online encryption security,local companies normally used their service but for oversea mnc and higher end security level requirement symantec and ca are more preferable and reliable choice, very hard for them to compete.
current price is fully value nothing more nothing less.
17/02/2019 15:13
Amazinggrowth ChongHH,
At 9.7x PE, the market assumed that Opensys will never grow again. Thanks to the misunderstanding about the threat of cashless payments, valuations are cheap. I think there is a lot of opportunity to grow. Currently, only 20% of bank machines are CRMs. The market share had tripled from only 6% in 2015.
17/02/2019 22:59
Mc_Wei Good company, however CEO's pay is too high for this sort of profit (based on 2017 AR). This type of pay, I'd expect company's net profit is 10m at least.
17/02/2019 23:45
CFTrader My personal opinion was currently, the banks just replacing the CDM (Cash Deposit Machine) to CRM (Cash Recycling Machine)

Let me give you an example...
Before 2015, an outlet might have 4 ATM , 2 CDM , 1 Cheque Deposit Machine and so on.

Currently banks are actively replacing CDM into CRM (eg. 4ATM, 2CRM, 1ChDM)

My personal opinion will be if the bank have excess capital to improve, they will/might will replace the ATM with CRM.

Just my humble opinion, zero cent worth.

Sincerely
CFTrader
19/02/2019 13:25


 

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